Hold the lime, U.S. migrates to premium tequila

Manuel Rueda

5 Min Read

MIAMI (Reuters Life!) - Americans are drinking record amounts of tequila even as they migrate toward more expensive and pure varieties that are sipped slowly and savored rather than chugged down in shotglasses with salt and lime.

<p>A bottle of aged Tequila Herradura is displayed at a bar in Mexico City August 28, 2006. REUTERS/Daniel Aguilar</p>

The changes in tequila consumption are the result of at least five years of heavy investment by major brands in advertising and consumer education, said Francisco Gonzalez, the president of Mexico’s National Chamber of the Tequila Industry.

During a recent trip to Miami, in which he promoted Mexico as a tourist destination, Gonzalez spoke about trends in U.S. tequila sales.

“We’ve worked hard here to market our products, to train bartenders and to show consumers that you can drink tequila straight and sip it slowly,” he said. “Today the industry also offers a wide variety of products that helps consumers to appreciate the product.”

Overall sales of tequila in the United States have grown by 47 percent since 2003, Gonzalez said, with an estimated 11.6 million cases sold in 2010. During this seven-year period, sales for tequila brands in the higher price brackets grew by even larger rates.

U.S. sales of tequila bottles within the $20 wholesale price range have gone up by 129 percent since 2003, according to figures compiled by DISCUS, the Distilled Spirits Council of the United States. Meanwhile, sales of bottles priced at $22 and up, known in the industry as the super premium category, increased by 317 percent.

LOTS OF HISTORY

A product trademarked by the government of Mexico, tequila is only made in the state of Jalisco and some nearby areas, by producers who distill agave, an indigenous plant that takes up to seven years to mature enough for harvest. Value brands combine distilled agave with other sugars, while higher quality brands use only agave in their tequila.

Frank Coleman, DISCUS’s senior vice president, said that companies promoting high-quality tequila brands have excelled at marketing campaigns and efforts to teach retailers and customers about the drink and its 500-year history in Mexico.

But premium tequilas that sell for $20 and up in wholesale markets have also benefited from trends in the United States and other developed countries, where consumers seek high-quality products.

“People are drinking better and not necessarily more,” Coleman said.

DISCUS research found that 2010 sales of high-quality brands of Scotch whisky, bourbon and vodka grew in double digits in 2010, while sales of the lower-priced versions of these spirits were stagnant and sometimes even fell.

High-quality tequila brands have also benefited from changes in liquor regulations. Since 2003, 18 states have passed “sampling” laws that allow retailers to provide free liquor samples at stores bars or restaurants. A total of 43 states currently allow some form of liquor sampling.

However, high-quality brands of tequila, and other liquors, have not been impervious to the slow U.S. economy. In 2008, when the recession began, supplier revenues from tequila brands in the $20 price range dropped 9.2 percent according to DISCUS, totaling $146 million.

Revenues from “value” brands in the $10 a bottle price range went up by 6.4 percent on the other hand, reaching $167 million. In 2009 sales were stagnant for $20 bottles of tequila, while sales of value brands grew by 23 percent.

Gonzalez, the tequila chamber president, said the industry is looking to expand in markets that are experiencing economic growth, such as Russia. Tequila exports to the vodka-loving country increased by 46 percent from 2009 to 2010, reaching 1.2 million liters.

Investment in tequila by liquor industry giants like Diageo, which distributes Jose Cuervo tequila, and Brown-Forman, which owns the Herradura brand, has also helped to open new markets for the fiery drink.

“Some brands are owned by multinational corporations,” said the tequila chamber’s general director, Francisco Soltero Jimenez. “They use those corporations’ distribution chains to put tequila in the farthest corners of the world.”

But the undisputed champion of tequila consumption is still the United States, buying 80 percent of global tequila exports in 2010. Germany is the number two destination for Mexico’s tequila exports, with just 4 percent of the market.

As the taste for higher quality tequilas develops north of the Mexican border, Gonzalez says that tequila companies will continue to invest in the United States.

“We’ve got 6 percent of the market (for liquors) right now” he said. “We have the remaining 94 percent to conquer.”